March Inflation Likely to Drop from 4.1% Recorded in February to 3.6 – 4.0%

Cytonn Weekly report has projected that the y/y inflation rate for the month of March is likely to come in within the range of 3.6 – and 4.0 percent, a decline compared to 4.1 percent recorded in February.

The report has noted that the m/m inflation for the month of February is, however, expected to rise due to a rise in the food and non-alcoholic beverages index, which has a weighting of 36.0 percent, mainly driven by the rise in food prices with a significant rise being recorded in tomato prices.

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Consecutively, a rise in the transport index is also likely to elevate inflation further. The transport index currently has a weight of 8.7 percent.

The weight is attributed to petrol prices that increased by 1.3 percent to 101.4 shillings, from 100.1 shillings per liter as previously recorded. Diesel, on the other hand, recorded a 0.7 percent rise to 96.6 shillings from 96.0 shillings per liter as registered previously.

Also, a rise in the housing, water, electricity, gas and other fuels index, following the 3.1 percent rise in kerosene prices to 99.5 shillings per liter from 96.5 shillings per liter noted previously is another factor that will further elevate inflation.

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Monetary Policy

Meanwhile, the Monetary Policy Committee (MPC) is set to meet on March 27 to review the prevailing macroeconomic conditions and decide on the direction of the Central Bank Rate (CBR).

In their previous meeting held on January 28, the committee maintained the CBR at 9.0 percent, citing that the economy was operating close to its potential and inflation expectations remained anchored within the target range, thus the prevailing monetary policy stance remained appropriate.

The stance was largely influenced by the country’s macroeconomic fundamentals, which remained stable as well as sustained optimism on the economic growth prospects.

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This has been evidenced by inflation expectations, which have remained well anchored within the target range, declining to 4.7 percent in January 2019, from 5.7 percent recorded in December 2018.

The decline was mainly driven by a 1.4 percent decline in the transport index attributable to a decline in pump prices of petrol and diesel.

Increased private sector optimism also contributed to MPC stance of the current policy. According to MPC’s Private Sector Market Perception Survey conducted in January 2019, it was indicated that the private sector was optimistic about local economic prospects.

Still, the private sector expects stronger economic growth in 2019, driven by a better investment climate, continued infrastructure development, expectations of increased agricultural production, the continued decline in international oil prices, and strong tourism performance.

Read more here MPC Meets on Wednesday: What Should Kenyans Expect?